A Millie Here, A Millie There

"Final" October retail sales figures are out. There are lots of reasons it takes a few weeks to sift through the chaff to produce what really happened.

The good folks at Seeking Alpha (you should visit daily) crunched all the numbers for you and had this to say:

"Department stores are struggling the most, with specialty stores not far behind. Both are at their lowest levels in the history of the Bloomberg indices."

They are using the Bloomberg metric, so when they say "worst", they mean since 1992, which is still amazing because nobody compiled these figures as comprehensively before that time.

You can view the entire report HERE.

The Coldest Winter Ever

"Habit is habit, and not to be flung out of the window by any man, but coaxed down-stairs a step at a time."

-Mark Twain (Pudd'nhead Wilson)

Americans, like all people, are creatures of habit. The greatest difference in the American habit and those of other cultures, is our national habit is shopping. We like to spend. What one owns, or wears, or drives, or goes to school, or lives, or vacations, or get their hair cut, or gets married, or goes to eat when dining out defines them in American Society. 

Oft times we make the mistake of believing it's how much money a person makes that defines them, which may be true to a small few. However, for the rest of us, that too is just a means to an end. We want to make money, so we can turn around and spend it. This is why Americans are the most debt-riddled people in Western Civilization. We know what great is and we deserve it, right?

This is the unshakeable truth that the financial markets have been faced with since late-August, when small fissures in the credit dam began to express themselves. Around the clock internal meetings ensued at most large banks around the world, as their leadership began to prepare reporting 3rd Quarter figures to the world. "My God, we will be the laughing stock of the banking community", they thought. For not even the sharpest of pencils, that means you Jamie Dimon, could have thought their situation was not unique.

As the reporting period began in early-September, the trickle of bad news began to emerge. Massive mortgage debt, record foreclosures, delinquent car loans leading to widespread repossession, individual credit-card payments slowing down, record personal bankruptcy filings, small business loans having to be renegotiated, large commercial real estate loans being defaulted on and massive insurance pay-outs from Hurricane Ike. For the trickle was now a full blown tsunami. 

The markets, being unprepared for such overwhelming bad news, and from so many different arenas, did what anyone would do in such situations, it collapsed.

While I cannot profess to have lived through the market crash that started "The Great Depression", I can say for certain, there were never less stable days in America, financially speaking, than those of September 15-17. That is, of course, excepting those of October 1-10 when they New York Stock Exchange (and thusly the American Investment community) lost 22% of it's wealth.

The uncertainty of those days in mid-September days produced a plethora of bad ideas as to how to fix the problem (hello $800 billion bailout). However, two main ideas that emerged are what now clearly going to have major negative, long-term repercussions for the American public.

The first idea was the focus by the Federal Reserve and the Treasury Department on how to stabilize the markets until Thanksgiving, a time when most Americans stop paying attention to affairs that do not involve their families. Usually, market "corrections" happen in October, which gave rise to this dandy from Mark Twain:

"October. This is one of the peculiarly dangerous months to speculate in stocks in. The others are July, January, September, April, November, May, March, June, December, August and February."

Every economist is trained as to how to deal with such problems and the entirety of their training matrix is based on the dreaded "October Surprise."

What threw Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke, was the "surprise" came not only in September, but early-September. This meant all their training on how to control a downturn for 4-6 weeks, was staring down the barrel of a finish line minimally 11 weeks away. This is what created so much uncertainty. And said uncertainty is what really rocked the market harder and harder as time wore on.

The Financial Market's hare is now coasting to certain victory, while the Economy's turtle plods along. 

Well, now that the hare is finally and exasperatedly near the "finish line", prepare for the fan to start kicking out a rather familiar foul odor. Bad news, even in great economic times, is saved and distributed, like so many secret santa gifts, for the period between Thanksgiving and Christmas. 65% of all lay-offs happen during this period, most companies that are going to change leadership do so, companies settle lawsuits that have dragged on for years and the like. All because they know that spirits are high and we are not paying attention. 

Unfortunately for most, attention will be payed like no time in our prior history a a nation. Hopefully, we can bear the weight of what is surely coming.

The second and more unfortunate idea to emerge is the unbelievably misguided theory of the core problem afflicting the economy, bad mortgages. That is a problem, but one that has been silently stalking us since late-2003, early-2004. Bad mortgages were a problem before they starting lending to sub-prime borrowers. Tales of bus drivers taking out loans to buy million dollar homes with swimming pools are greatly exaggerated. Bad debt was spread around in many directions.

Start-up small businesses were given billions of dollars in bad loans. The evidence is on display in every American neighborhood, expressed by the growing number of "Store For Rent" and "Commercial Space Available" signs on display. The unfortunate reality of their failure is a great many of these new small business owners leverage their homes to borrow for the new enterprise, making a bad situation into a crisis, all in one fell swoop.

Large Corporations were given massive loans to re-tool factories and invest in additional materials for a burgeoning market that did not, and does not, exist. This is the problem that expressed itself in the form of the trouble Ford and General Motors finds themselves in at the moment. Both have invested in infrastructure for 2009 model-year cars, when both have seen 2008 inventories balloon well beyond record levels.

These examples are just a small glance at the behemoth clogging the pistons of America's Economic Engine. However unseemly all these scenarios appear to be, the real core issue affecting everyone in this country, every company in this country, every trading partner with this country, is credit.

We are a credit society. We have been a credit society since at least the dawn of the 1980's, and a case could be made for earlier. Before then, people who wanted things, saved up their money and bought those things, or did well enough without them. Television re-runs of Archie Bunker yelling at Edith about her spending the family savings on a new dress, do not ring as credible or accessible to anyone under 40 years of age. Today's sitcom is more inclined to revolve around a wife hiding a credit-card bill for something she has already purchased. Herein lies the problem, fully and naked-as-can-be.

Americans have been resistant to living on a pay-as-you-go economy. Families forced to do so would surely have dramatic lifestyle changes. Older (I'm sorry, Certified "Pre-owned") cars would be di rigeur, hand-me-downs would a more familiar reality and, while I can't say they would not be as beautiful, family homes would be much, much smaller than they are at present. Think about it, when was the last time you met a kid that shared their bedroom with a sibling. How about the last time you saw a kid on television share a bedroom. Large is who we have become, in lifestyle and as individuals.

Businesses are in the same boat. When facing pay-as-you-go economics, the ability to adjust to a rapidly changing marketplace are fantastically diminished, almost to nil. Every bet, and I mean that literally, has to be a correct estimation, which pays off in expected dividends or beyond. The smallest misstep would create a cascading snowball effect, damaging the company in ways that would threaten it's existence. This would naturally lead to much more cautious leadership, less innovation and winnowing of options in the consumer marketplace.

This is a very realistic depiction of the American future should Financial Institutions continue upon the path of "correction they are on. The problem facing this country is the lack of available credit to the individual. Unsold housing inventory, as well as automobile inventory continue to swell, due to the Financial Community's decision to sit on it's hands and not loan money at present.

There is certainly a conversation in the offing for American's and American Business Leaders, about how to manage our existence within new boundaries. However, no is not the time.

This Holiday Season is going to be hard on a bunch of families, which means it will trickle up to have a tremendous negative impact on Retailers. This Thanksgiving weekend is the movie trailer to a new, terrifying Horror classic in the name of December.

Recognizing the "stakes" will not be enough for the Fed and Treasury. Identifying the problem on the ground and re-stimulating those at ground zero is the only way out of this economic morass. 

Turn the pipes back on!

Rising to the Occasion

November has, so far, been a better month for Retailers than some (self included) had forecast. There are several ancillary factors that worked in merchant's favor this year. 

For instance: 

• A very late Thanksgiving (27th) which enabled tamped down expectations for the first half of the month.
  
• The market starting it's meltdown in September allowed ample time for stores to cut non-advertised holiday orders and slash prices in time to counter-balance consumer fears about spending.
  

These things, and others, have led to a better than expected, though still tough, start to the month and has many retailers feeling they may emerge from this holiday season with a "win."

Such thinking is nonsense. As stated in previous posts, this is the toughest environment facing the Retail Industry in over 30 years. Those that are banking on things remaining on the same tracking lines of what has happened in their stores so far in November are in for a rude surprise. They are much akin to those few, grainy people you could barely make out in the videos before the tsunami hit Thailand, walking out on the exposed surf to see where all the water went.

While many can take pride in what has happened thus far, here are a few realities to consider:

1. There were 240,000 jobs lost in the United States LAST MONTH! This does not include part-time workers, those that saw drastically reduced hours, or those that are considered "contract workers."
   
2. Citi-Group has announced plans to cut 52,000 people from their workforce, in addition to the 22,000 already in the works. That is from ONE company. Now they are the first to "jump" in the troubled financial sector, surely others will follow suit rather soon.
   
3. The Technology Sector announced 70,000 lay-offs in the 3rd Quarter alone, and expect another 40-50,000 before years end.
   
4. Circuit City  is closing 150 stores and has filed for bankruptcy, and Best Buy has issued warnings about holiday expectations. However lost in the chatter is the story of Tweeter. This company with well over 100 stores has gone belly up without any fanfare. All this happening in what many consider to be the strongest segment of the Retail Sector, consumer electronics.
   
5. The onslaught of bad press regarding gift-cards this year. Every newspaper and broadcast news program has done a segment warning people of the "dangers" of buying gift cards. This will kill off a significant portion of the late-December to January traffic, of people looking for bargains, we have come to expect in years past.
   
6. The tightening credit markets, which have not yet fully expressed themselves with regard to the consumer credit-card market yet, but it is coming.

Add to this:

• Retailers cutting prices fully 2-3 weeks earlier than any time in recent memory. Forcing stores to sell more quantities to meet the same sales figures.
  
• Downward pressures of lower gross margins as a result of price cutting.
  
• Heightened consumer expectations of further reductions for the post-Thanksgiving holiday weekend, that must be met.
  
• Chronically high transportation costs (though they have contracted lately) to move goods around.
  
• Slashed advertising budgets.
  
• The unfortunate timing of 401k statements arriving at the end of October - beginning of November, bearing ill news regarding retirement portfolios.
  

The picture of a dour December, with high double-digit losses, becomes a bit more clear. And for those that make it, an unbelievably tough January.

Those companies with Human Resource Department that have been aggressive and forward-looking in their planning, will be ready for this development. Those without will be left with badly bloated employee rolls, confused and emotional managers at a time when all focus should be on driving business, and most unfortunately, a stress-filled environment full of guess-work and uncertainty about how to handle the situation properly.

Take action now, proactively. You owe it as a leader, to your employees, your management staff and your clientele, to be as professional and up-standing, most especially in tough times, as possible.

Best of Oct: Barney's NY Part II

If you ever want an idea of what to strive for when creating visually compelling windows, start with these.

The artist or, surely, artists at Barney's achieve the spectacular, the odd, the jaw-dropping, the unique and the spectacular in five panes. 

Coherence, clarity, individuality, deep personality, wit, aspiration and, my favorite, relevance are all present.

To take a theme (ostrich) and work it in 5 mediums, from actual plumage, to wire hangers, even suit swatches takes more talent than one can imagine.

All well done, all telling a separate story, and done with depth (both literal and figurative).

This is usage of the window space practiced in it's highest form.

I look forward to keeping an eye out for this team's work in the coming months.

Best Of Oct. Barney's NY (Rush & Oak St.)

Very few people can do what you see in the first image. In one succinct window pane you get:

1. The hottest topic in popular culture (the Presidential Election).
2. A humorous nod to local pride in race (Abe of Illinois, just like Obama).
3. An unencumbered view of the genius that is Dior tailoring.
4. An uncluttered reminder of your civic duty (Go and VOTE!).

This is one of the strongest simple presentations I have seen, ever. I spent a considerable amount of time taking it in at all angles. 

I came to the conclusion that the single most impressive thing about the entire window, is how the whole visual is authenticated by the small piece of felt pretending to be Abe's beard. Had faux hair been used it would not have been as effective, or gratifying.

This, folks, is damn near genius.

Why Windows Matter

As budgets start to contract throughout the entire retail hierarchy (most especially in support divisions), the usage of window space becomes a critical component of driving your business. 

Let's face it, spending, on advertising in particular,  is dramatically down in the past four months. Retailers, design houses and boutiques are being stretched to a limit not seen in modern retail history. Therefore every function of the company must be lock step in an all-out quest to promote your brand. Every dollar spent on anything beyond inventory must be expected to produce a significant return on investment. 

Display windows, in any store, should be a driving force in that quest. A poor visual display in your window gains little to no interest and thus was not worth the time spent doing them. Good visuals in store windows show the public what you are selling and even drive a specific item in the display to sell much better. Great visual displays are something else entirely. 

Great windows not only drive business, but additionally, they enhance or reinforce your brand and demand contemplation from a public notorious for possessing a short attention span.

Poor Windows are usually done by "a person" working at the store. Good windows are usually done by very competent visual teams that work within the stores, guided by the bureaucratic corporate idea of uniformity. However, great windows can only be achieved through the direction of ARTISTS, whether they are part of a team of visual artists within the stores ,or are contracted out by the retailer. In either case, they are given pretty much complete autonomy, for the retailer hired them for their ability to creatively express themselves.

I saw more than a few examples of each this week.

Here are a few from my most recent walk.